CIE and NCEA Level 3 revision – Natural Monopoly

In the A2 multiple choice paper (P3) and the NCEA Level 3 Marginal Analysis, natural monopoly is a popular topic . Here are some thoughts on the types of questions they could ask on natural monopoly graphs. Remember that the natural monopoly achieves economies of scale at all levels of output therefore the MC curve cuts the AC curve above the AR curve. The following are areas/points on the natural monopoly graph that you should know about. Loss of allocative efficiency is a popular question.